Reference no: EM133074879
UG221 Financial Accounting - University of Sunderland
Learning outcome 1: An appreciation of the conflicting issues in financial accounting
Learning outcome 2: An understanding of key complex models and techniques in financial accounting.
Learning outcome 3: An understanding of the international dimension to financial reporting
Question 1
a) On 31 December 2018 Pee Plc purchased 80% of the share capital of Cee Ltd for £60,000 when its accumulated profits were £30,000. The individual Statement of Financial Positions of Pee Plc and Cee Ltd at 31 December 2020 were as follows:
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£
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£
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Non-current assets:
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Property, plant and equipment
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160,000
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50,000
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Cost of investment
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60,000
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00000
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220,000
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50,000
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Current assets
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30,000
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10,000
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Total assets
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250,000
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60,000
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Equity and liabilities
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Ordinary shares of £1 each
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100,000
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20,000
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Retained profits
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150,000
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40,000
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250,000
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60,000
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Consolidated goodwill is subject to an annual impairment review. No impairment has been detected to date.
Required:
Prepared the consolidated statement of financial position for the Pee group at 31 December 2020. Pee plc has a policy of valuing Non-Controlling interest at their share of net assets at acquisition.
b). The qualitative characteristics of relevance, reliability and comparability identified in the IASB's Framework for the preparation and presentation of financial statements (Framework) are some of the attributes that make financial information useful to the various users of financial statements.
Required:
Explain what is meant by relevance, reliability and comparability and how they make financial information useful.
Question 2
a). Patrick Financial Services, an accounting firm, specialises in providing accounting and taxation work for dentists and doctors. You have been provided with financial information relating to the firm in appendix 1. In appendix 2, you have been provided with non-financial information which is based on the balanced scorecard format.
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Appendix 1: Financial information
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Current year
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Previous year
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Turnover (£000)
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945
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900
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Net profit (£000)
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187
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180
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Average cash balances (£000)
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21
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20
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Average trade receivables days (industry average 30 days)
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18 days
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22 days
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Inflation rate (%)
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3
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3
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Appendix 2: Balanced Scorecard (extract)
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Internal business Processes
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Error rates in jobs done
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Current year
16 %
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Previous year
10%
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Average job completion time
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7 weeks
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10 weeks
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Customer knowledge
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Number of customers
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Current year
1220
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Previous year
1500
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Average fee levels (£)
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775
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600
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Market share
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14%
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20%
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Learning and Growth
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Current year
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Previous year
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Percentage of revenue from non-core work
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4%
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5%
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Industry average of the proportion of revenue from non-core work in
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Accounting practices
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30%
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25%
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Employee retention rate
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60%
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80%
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Notes
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Notes
1. Error rates measure the number of jobs with mistakes made by staff as a proportion of clients serviced.
2. Core work is defined as being accountancy and taxation. On-core work is defined primarily as pension advice and business consultancy. On-core work is traditionally high margin work.
Required:
I. Using the information in appendix 1 only, comment on the financial performance of the business (briefly consider growth, profitability and credit management)
II. Explain why non-financial information, such as the type shown in appendix 2, is likely to give a better indication of the likely future success of the business than the financial information given in appendix 1.
III. Using the data given in appendix 2, comment on the performance of the business. Include comments on internal business processes, customer knowledge and learning/growth, and provide a concluding comment on the overall performance of the business.
b). Briefly discuss why professional ethics are important in accounting and discuss five fundamental principles of professional ethics for accountants.
Attachment:- Financial Accounting.rar